Hillary Clinton Told Wall Street To ‘Cut It Out’—Not So Much, the Record Shows

Last April, during her first official appearance as a presidential candidate in Iowa, she said: “There’s something wrong when hedge fund managers pay lower taxes than the nurses or the truckers that I saw on I-80 as I was driving here.”

Her aides told reporters she was referring to the so-called carried-interest loophole, which taxes compensation earned by private equity partners and hedge fund managers at a lower rate than ordinary earned income.

What they didn’t say was that Clinton never signed onto the bipartisan June 2007 bill that would have curbed the break.

Her rival for the nomination, then-Sen. Barack Obama, became a co-sponsor on July 12. The next day Clinton gave a campaign speech criticizing the tax provision. Yet she still didn’t put her name to the legislation, according to records.

AIG

At the debate, Clinton said her plan for Wall Street oversight would go beyond the one issued by Sanders. Big banks aren’t the only danger to the system, she said. “Look at what happened in '08, AIG, a big insurance company, Lehman Brothers, an investment bank helped to bring our economy down,” Clinton said.

Clinton had some first-hand knowledge of AIG’s fall. In September 2008, she quietly reached out to Paulson, Bush’s Treasury secretary, on behalf of some wealthy investors in AIG. The giant insurer had made bad bets on the mortgage market, couldn’t pay its debts and faced imminent collapse. Shareholders were poised to lose billions if the company went bankrupt or was taken over by the government.

Paulson’s calendar shows that he and Clinton talked on Sept. 17 and 20. In his book about the financial crisis, Paulson mentions just the first conversation, saying that Clinton called on behalf of Mickey Kantor, a lawyer, who represented a group interested in staving off AIG’s imminent collapse. The group’s investment banker, according to news accounts at the time, was Roger Altman. Kantor and Altman are long-time friends of Hillary Clinton and served as senior officials in her husband’s administration. Altman headed a secret energy task force for Clinton when she was in the Senate.

In Paulson’s account of his conversation with Clinton, Kantor represented a group of Middle East investors who were considering a bid for the insurer. Paulson quoted Clinton as saying the investors hoped to save the government from having to “do anything,” but Paulson said he told her any private solution would have to guarantee AIG’s billions of dollars in liabilities, a huge, if not impossible, hurdle.

But in an interview with ProPublica, Kantor said Paulson didn’t have it quite right in the book. Kantor said he was working on behalf of “major shareholders” in AIG, not Middle East investors. The shareholders he represented owned about 30 percent of AIG’s shares – one of them was Eli Broad, a Los Angeles billionaire, philanthropist and friend of the Clintons.

Kantor said he couldn’t remember whether he had sought Clinton’s help but said it was possible given their 40-year friendship. Kantor said he hoped to persuade Treasury his clients could raise enough money to “put the ship in order,” but by the time Paulson and Clinton talked the Federal Reserve had concluded a private rescue, at a cost of at least $75 billion, was not feasible.

With its stock in free fall, there was no private solution to AIG. The Treasury and the Fed feared that if AIG defaulted, the ripples might bring down the international banking system. By Sept. 22, the Federal Reserve Bank of New York was completing a rescue package that gave the government almost 80 percent of the company in return for a loan of $85 billion. As a result, private shareholders, including Kantor’s clients, lost most of the value of their stock holdings. The U.S. eventually earned a profit of almost $23 billion on its investment.

Paulson declined to comment, Altman did not return a phone call, and a spokesperson for Broad and his foundation didn’t respond to emails or phone calls.

More BailoutsThe most important action Clinton took related to the financial crisis may have been her vote in favor of the $700 billion bank stabilization plan, essentially a bailout of Wall Street. After a short but tumultuous debate, the Senate approved the Bush administration’s plan, known as TARP, on Oct. 1, 2008. Nine Democratic senators, 15 Republicans and one independent (Sanders) voted no.

Clinton told the Senate during the debate: “For two years, I and others have called for action as wave after wave of defaults and foreclosures crashed against communities and the broader economy.” She called for an end to the “culture of recklessness in our financial markets endorsed by an ideology of indifference in Washington.”

The next day Clinton spoke to a New York City radio host and expanded on her support for TARP.

“I think that the banks of New York and our other financial institutions are probably the biggest winners in this,” she said, “which is one of the reasons why, at the end, despite my serious questions about it, I supported it.”

A version of this story originally was published by ProPublica, an independent nonprofit newsroom.